November WTI crude oil (CLX23) on Friday closed up +0.40 (+0.45%), and Nov RBOB gasoline (RBX23) closed down -5.62 (-2.19%).
Nov WTI crude oil and gasoline prices on Friday settled mixed, with gasoline falling to a 2-week low. A rally in the dollar index today to a 6-1/2 month high was bearish for energy prices. Also, Friday's decline in the S&P 500 to a 3-1/4 month low undercut confidence in the economic outlook, which was negative for energy demand.
However, crude posted moderate gains on expectations that global oil supplies will remain tight. Crude also had carryover support from Thursday when Russia banned gasoline and diesel exports, further tightening global fuel supplies.
Global economic news Friday was mixed for energy prices. On the positive side, the U.S. Sep S&P manufacturing PMI rose +1.0 to 48.9, stronger than expectations of 48.2. Also, the Eurozone Sep S&P composite PMI rose +0.4 to 47.1, stronger than expectations of a decline to 46.5. On the negative side, the Eurozone Sep S&P manufacturing PMI unexpectedly fell -0.1 to 43.4, weaker than expectations of an increase to 44.0. Also, the Japan Sep Jibun Bank manufacturing PMI fell -1.0 to 48.6, the steepest pace of contraction in 7 months.
Weakness in the crude crack spread is bearish for oil prices. The crack spread on Friday fell to a 9-1/4 month low, discouraging refiners from purchasing crude oil to refine it into gasoline and distillates.
On Thursday, Russia said it would ban gasoline and diesel exports in an attempt to stabilize domestic fuel prices. The ban will take out about 1 million bpd of fuel supplies, or about 3.4% of total global demand according to Vortexa data, and will squeeze supplies further in an already tight global energy market.
Oil prices have support from forecasts last week by the International Energy Agency (IEA) and OPEC that the global oil market will be in deficit through year-end. Last Tuesday, OPEC projected that the global oil market may experience a shortfall of 3.3 million bpd in the fourth quarter, the tightest oil market in more than ten years. Also, the International Energy Agency (IEA) last Tuesday projected the global oil market faces a deficit of about -1.2 million bpd in the second half of this year as oil supply cuts by Saudi Arabia and Russia create a "significant supply shortfall."
The tightness in the oil market is expected to continue due to the extension of OPEC+ production cuts. Saudi Arabia recently said it would maintain its unilateral crude production cut of 1.0 million bpd through December. The move will hold Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years. Russia also recently announced that it would maintain its 300,000 bpd cut in crude production through December. Russian crude oil shipments in August dropped to 2.28 million bpd, down -9% m/m and the lowest daily average in eleven months.
Oil prices were undercut Monday when Saudi Energy Minister Abdulaziz bin Salman Al Saud said "the jury is still out" on Chinese oil demand. Also, Saudi national oil company Aramco on Monday pared its outlook for longer-term 2030 oil demand to 110 million bpd, versus the 125 million bpd it expected in 2010. The IEA is projecting an even lower 2030 demand of 105 million bpd due to the energy transition. Shorter-term Aramco is forecasting record consumption of 103-104 million bpd in the second half of 2023.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -8.9% w/w to 83.89 million bbl as of Sep 15.
The U.S. and Iran on Monday announced a prisoner exchange and the unlocking of $6 billion of Iranian funds. Improved U.S.-Iran relations could result in the eventual resumption of nuclear talks, with any deal leading to relaxed Iran sanctions and increased Iranian oil exports. According to TankerTrackers.com, Iranian crude exports rose to a 5-year high of 2.2 million bpd during the first 20 days of August, with most of the crude going to China.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Sep 15 were -2.9% below the seasonal 5-year average, (2) gasoline inventories were -2.7% below the seasonal 5-year average, and (3) distillate inventories were -15.2% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 15 was unchanged w/w at 12.9 million bpd, the most in 3-1/2 years. U.S. crude oil production is modestly below the Feb-2020 record-high of 13.1 million bpd.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended Sep 22 fell -8 to a 19-1/2 month low of 507 rigs. That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022. Still, U.S. active oil rigs have roughly tripled from the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity from pandemic lows.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
